Belgium, attacked by markets, awaits help from king

Belgium's fate hung on a fresh bid Tuesday by King Albert II to find a way out of a marathon political crisis leaving the seat of the European Union open to attack from financial markets.

Belgium's borrowing costs soared to record heights early Tuesday after feuding politicians from the Dutch-speaking north and French-speaking south failed to strike a highly-awaited government coalition deal last week.

Now 212 days without a government, a post-war European record as of last weekend, the country's court-appointed political mediator, Johan Vande Lanotte, meets Albert II later Tuesday for talks slated to deliver a fresh way forward.

Vande Lanotte, visiting the king despite the death of his ailing elderly mother overnight, last week tendered his resignation as political go-between in frustration, but is widely expected to be tasked by Albert II to continue.

A palace spokesman told AFP that Vande Lanotte had held "constructive" talks Monday with Belgium's leading political opponents -- Elio Di Rupo, a French-speaking Socialist, and Bart De Wever, head of the Dutch-speaking separatist NV-A.

The pair scooped majorities on either side of Belgium's language divide at June 13 general elections that failed to produce a clear winner, leaving the king grappling behind the scenes to seek an arrangement.

The seemingly endless crisis since has thrown the country of 10 million into the eye of the eurozone storm despite basically sound indicators.

On Tuesday, the interest rate Belgium must pay to borrow money on the market surged, with a record gap between the yields demanded for Belgian and German bonds.

Fears it could be sucked into the rumbling eurozone crisis sent Albert II stepping into the economic arena Monday to ask the caretaker government for a budget "better balanced than the one agreed with the European authorities."

At six percent in 2010, the public deficit is far lower than in weaker euro countries such as Ireland and Greece, but well above the three percent set by the Stability and Growth Pact governing the eurozone. The caretaker cabinet had aimed to slice deficit to 4.1 percent, but could aim for 3.7 percent.

A budget cut "could appease markets in the short term," said Philippe Ledent, an analyst at ING. "But it will be difficult for a caretaker government to take the sort of structural decisions markets are seeking to ensure stable medium-term debt."

Belgium has been in political hot water since 2007 as nationalist sentiment grows in Flanders.

Vande Lanotte's proposal offered a 60-page outline to reform the state, increasing devolution to the country's three regions -- Flanders, Wallonia and bilingual Brussels -- in line with demands from the powerful independence-minded N-VA.

The party, representing the wealthier 6.2 million Dutch speakers of Flanders, complains of footing the national bill for the 4.5 million francophones living in the rust belt of Wallonia.

NV-A chief De Wever recently dubbed Belgium a failed state with no future, saying pouring money into Wallonia was "an injection like a drug for a junkie."

Also at the centre of conflict between Flanders and Wallonia is the fate of the capital, a largely French-speaking city of one million people, with road-signs in both languages, located in Flanders.

Despite its prestige as capital of Europe, its coffers are in poor shape and unemployment is at 20 percent. In line with demands from the French-speaking parties, the latest compromise suggests donating 15 percent of taxes raised by the regions to Brussels.

Also to be sorted is the status of some 130,000 French-speakers living on the outskirts of the city, who for 40 years have enjoyed special voting and legal rights.